Uncovering Time Variation in Public Expenditure Multipliers : New Evidences

The paper provides fresh evidence on the dynamics of public expenditure multipliers and the factors explaining them. The findings of this paper will facilitate the policymakers in effectively framing fiscal policy to expedite economic stabilisation and uplift economic growth. The study proceeds with computing the time-varying public expenditure multipliers by employing the TVP-VAR model on the Indian quarterly dataset between the period 1997Q1 to 2019Q4. In the next stage, it pursues to examine the role of structural factors in explaining the time-variation in public expenditure multipliers. The empirical investigation reveals the heterogeneity in time-varying transmission and effectiveness of revenue capital and total expenditure shocks. The study further finds the adverse effects of fiscal instability and trade openness on public expenditure multipliers. In contrast, financial development and a larger propensity to consume enhance the public expenditure multiplier values. Withal structural factors have consequential effects on public expenditure multipliers in the long run and medium run. In the short run, the direction of structural factor’s impact on public expenditure multipliers is in line with long run multipliers, although their impact turns insignificant